Let’s consider: Maximum Wage

When one talks about wage gap, you can almost expect cryptic formulas such as the gini coefficient to be whipped out for discussion. We’ll do things a little differently here. Let’s look at real dollars.

The above show the average monthly household incomes from work. You will be able to observe the wage gaps of the 1st , 51st and top decile of family incomes in the last 10 years. Without translating this to percentages, have a look at the numbers and take a moment to savour how it feels like for a household to make $1581 a month. Think about the people who make up this family unit – they could quite likely be taking up manual work such as cleaners, odd job labourers and food service.

Now savour a moment how it feels like to make $27,867 a month. There have been many papers published about the fairness of salary paid to these individuals: do their work contribute to the expansion of the economic pie? (FYI – $27k is an average number. Banking and other private sector chiefs & directors receive salary much higher than that figure. UOB CEO’s pay package last year was $8m)

The rich and ultra-rich save a larger portion of the salary. The lower wage earners spend much, even all of their income each month. This is a picture of inequality and the wider this gap grows, the closer we inch towards social instability.

Mdm. Chen, 53, is a cleaner working with a cleaning company. With no pay slip or a contract to prove an income, she gets paid in cash $700 a month. She lives with a husband who suffers from stroke and they get by through renting out a spare HDB room at $600 to supplement their income. She explained her sitiuation in Hokkien, “When we’re younger we didn’t have the opportunity to study… we didn’t know how the world works… that’s life, i’m making a fair living and i’m happy”.

Contrast this with the investment banker. He makes profit by entering and exiting markets at the right moments, moving nary a finger. With his salary, he buys and spends carefree. Cars, holidays, expensive meals.

Income gaps at any level provoke resentment, envy and creates tension. It is naive to think that the low-wage worker will understand the necessity of inequality, the symbiosis between high and low earners and embrace the richer individual and accept him as the source of employment and liquidity.

Some jobs allow the executive to accumulate enormous wealth, without actually increasing the amount of benefit to society. Greed can cause unfair practices to enter the corporate landscape, depressing wages even further and making for an unfair playing field.

Maximum Wage

We have heard many calls for “minimum wage” to protect low wage workers. How many times have we heard of “maximum wage”? If legislated, it means there is only so much money an executive can earn. This will then channel funds into paying the bottom rung of society more, resulting in greater equality.

You might argue that it is unfair to limit the amount of profit and entrepreneur could make, fair enough. Simply legislating the problem out of sight is not the objective here. The target of a wage ceiling is not to penalise the entrepreneur that adds value to society, but rather the overweight incomes of salarymen. With a dynamic limitation system, it could even be possible to peg salaries to the number of jobs created and/or the wages of the bottom rung of a company.

You could also argue that high levels of salary is necessary to attract and retain talent. A report in The New York Times show that amongst the five companies which the U.S government bailed out (AIG, Citigroup, Chrysler, GM and GMAC), 88 out of 104 senior executives continue to stay in their companies even though pay was drastically reduced. Money is one factor of motivation. Status, power and influence contribute equally to the incentives executives draw.

Policy Mix

No one policy will bring blanket equality to society. It is not possible and pursing it will be naive. It takes acceptance of the population at large, gutsy politicians who will risk their votes in the name of equality and a combination of assistive programs, education and outreach. It could be paired up with minimum wage. It could be balanced with increased consumption taxes. Total benefits to the executive could also be revised, less hours for less pay? Increased paid leaves? The ultimate goal is to shift more financial power into the hands of the bottom rung of society, because happiness is always a worthy cause to pursue.